Trade less, earn more with Turn of Year timing model

Most investors have heard of the “January Barometer,” first five days of January rule, and “If Santa Should Fail to Call” type systems. Motivated to identify how all these systems lined up in terms of predictability, it would be prudent to turn the computer loose on all time periods of the year, ranging anywhere from one week to one quarter, in search of the time frame that had the highest correlation coefficient to the following year’s market performance. While such a study reveals interesting findings, the best predictor of future performance appears to be based on the combined two-month period from Nov. 19 to Jan. 19. “Triggering a trade,” (below) shows the one year (Jan 19 – Jan 18) S&P performance following the Nov. 19 to Jan. 19 period broken down into three criteria: Above 3%, 0-3% and negative; the three different categories of the ‘Turn of Year’ barometer.

There was only one losing year (1987) out of 30 after a 3% plus bullish Turn of Year setup. In defense of that case, the S&P actually was up 20% from Jan. 19 through mid-August before succumbing to the double digit interest rates that fall that led to Black Monday (Oct 19). Conversely, there have been eight occasions since 1950 when the post-Jan. 19 year finished with a double-digit loss, and six of those eight occurred after one of the negative Turn of Year periods. All three of the -20% post-Jan. 19 years followed a negative Turn of Year period. In 1982 the bearish Turn of Year signals were the opposite of 1987 for the bullish Turn of Year readings as the S&P sold off in predictable fashion through the first half of 1982 before setting a major bottom in August and turning around to give the system one of its few annual boo-boos.

About the Author

Wayne Whaley is a systems engineering graduate from Georgia Tech who takes an engineering approach to tape analysis. He is a registered commodity trading advisor, co-owner of Witter & Lester, the 2010 MTA Charles Dow Award winner for research surveying various tape analyses and the producer of a free daily e-newsletter. Email him at wayne@witterlester.com.